The CFPB has said its research indicates that medical debt is less predictive of a person's ability to repay than other kinds of loans. (Photo: Shutterstock)
Medical debt can damage the credit ratings of even the most conscientious consumers. The nation's three largest reporting firms are responding with sweeping changes to how they report medical debt in collections.
Equifax, Experian and TransUnion will remove nearly 70% of medical debt in collections accounts from credit reports, the Wall Street Journal reported. Beginning in July, the companies will remove medical debt that was paid after it was sent to collections. These debts can remain on a consumer's credit report for up to seven years, even if they are paid off. New unpaid medical debts won't get added to credit reports for a full year after being sent to collections.
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"This is an important step to support consumers in the wake of the COVID-19 pandemic," the companies said in a joint statement. "These changes reflect our ongoing commitment to helping facilitate access to fair and affordable credit for all consumers."
The Consumer Financial Protection Bureau estimates that some $88 billion in medical bills is included in 43 million credit reports. The three credit-reporting firms maintain reports on more than 200 million people in the United States. The agency has taken a hard line on the U.S. credit-reporting system, which plays a huge role in determining who gets credit and who doesn't. Consumers have little control over what is added to their reports, which rely on information submitted by lenders, collections firms and others.
The CFPB has said its research indicates that medical debt is less predictive of a person's ability to repay than other kinds of loans, an assessment some banks endorse. Still, "medical debt collections on an individual's credit report can impact their ability to buy or rent a home, raise the price they pay for a car or for insurance, and make it more difficult to find a job," the agency said.
The main customers of credit-reporting firms are lenders, which use the information on credit reports to assess the likelihood that loan applicants will pay back their debts. The credit-reporting firms have been speaking with banks to get their take on removing medical debts, according to people familiar with the matter. Some banks have said they worry less about removing smaller unpaid medical bills and those that are in collections for a shorter period, the people said.
Banks worry that removing certain debts can make some loan applicants look less risky than they actually are, which could result in unexpected defaults and losses. Yet banks are in the business of lending money, and they don't want to turn away customers if they don't have to.
Unpaid medical bills were addressed in settlements the three firms reached with state attorneys general dating back to 2015. The companies now are required to wait about six months before adding medical debt to consumers' credit reports, and they must remove debts that were paid by insurance companies.
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Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
